Community Charters, New Cultures Create Profit Streams
The NCUA 5300 Call Report dedicates only two fields to the noninterest income category, but this important chunk of revenue actually includes more than a dozen components ranging from debit fees and mortgage sales to insurance sales and unconsolidated CUSO income.
Following Dodd-Frank, the trends and composition of noninterest income have shifted significantly with more credit unions seeking new ways to grow this revenue stream.
In 2013, the $59 million Ferguson Federal Credit Union in Monticello, Miss., was on a mission to draw in more noninterest income under the helm of a new CEO.
Its efforts paid off as the cooperative experienced a 142% surge and brought in more than $150,000 in noninterest profits as of June 30, according to data analyzed by Callahan & Associates for CU Times.
Ferguson was also ranked ninth on the top 10 list of leaders in noninterest income growth for credit unions with more than $20 million in assets.
“We introduced a lot of new products and services, and created a new sales culture that didn't exist previously,” said Leslie Pitts, president/CEO of Ferguson, who took the reins in 2013. “We don't have a big marketing budget, but we make a point of taking the time to talk to our members to ensure they have information about everything we offer that could improve their lives.”
Gap protection, debt protection and extended warranties are the most popular new offerings, said Pitts, who has worked in the credit union industry for 22 years.
“Approximately 80% of our vehicle loans take extended warranty and gap protection is equally popular,” she noted. “In addition to adding the new products, Ferguson FCU took a bold move by expanding our charter.”
The NCUA granted the cooperative's charter request to become a community credit union in April 2014. The change allowed Ferguson to be able to offer financial products and services to a larger geographical area that encompassed all of Lawrence County, Miss., Pitts said.
“Active new member recruitment has contributed significantly to our bottom line,” she pointed out.
Read more: Hear from other credit unions with robust NII ...
The $116 million Santa Fe Federal Credit Union's noninterest income skyrocketed 235% last year, earning CU Times’ highest ranking in that category. The Amarillo, Texas-based cooperative brought in just over $300,000 in noninterest income as of June 30.
Most of Santa Fe's increase can be attributed to a couple of major changes implemented in 2013, according to Steve Adee, president/CEO of the 8,300-member credit union.
“Before January 2013, Santa Fe FCU did not even offer debit cards to its members,” Adee explained.
After introducing debit cards in early 2013, the credit union rolled out an overdraft courtesy pay checking account in May that year. Both were promoted heavily by member service representatives and other staff, he added.
“Both of these services had been staples for other credit unions for years and we’ve benefited from adding them,” he said.
Established in 1936 for employees of the local railroad, Santa Fe was ranked by Depositaccounts.com as the 26th healthiest credit union on a list of 200 institutions and experienced unprecedented growth from July 2012 to July 2014, according to Adee.
Over the past 12 months, more than 1,700 new accounts were opened by members who were an average age of 37.2, he said.
“Santa Fe FCU has been working hard to adapt to the ever-changing financial markets by offering more convenient products and services,” Adee said. “Our member service has remained extremely high, while also controlling expenses, which allows us to return more back to our members through higher dividends.”
Although Santa Fe landed in CU Times’ top spot for noninterest income growth, the dollar amount generated is probably less than peer, Adee said.
“Just looking, a growth percentage may not be telling the whole story,” he said. “To give perspective, it's important to look at the actual numbers and not the percentage growth.”
Santa Fe isn't the only credit union counting on cards to carry most of the weight in earning non-income profits. Debit card and interchange fee income remained the largest component of noninterest income last year for credit unions that participated in Callahan & Associates’ latest noninterest income survey.
Card-related interchange and fee income accounted for 34.0% of total noninterest income in 2013, up from 32.3% in 2012, according to the survey. Since 2007, insufficient funds and courtesy pay income had been the largest component. By 2013, it became the second largest at 22.8%.
Noninterest income as a percentage of average assets for credit unions nationwide stood at 1.38% in 2013, down five basis points from 2012, the Callahan survey revealed.
Fee income posted 1.5% growth in 2013, down from 6.3% growth reported a year ago.
Other operating income increased 16 basis points in 2013 versus the 30.7% growth reported in 2012, the survey said.
Mortgages also offered a large source of noninterest income. Income from mortgage sales, servicing rights, and real estate lending fees was the third largest component, making up 12.8% of total noninterest income in 2013 compared to 17.7% reported in 2012, according to the Callahan survey. Credit unions sold $55.3 billion in first mortgage originations to secondary market in 2013, down 16.8% from 2012.